Geopolitical tensions in the Middle East continue to support demand for safe-haven assets such as gold, but rising risk appetite and a strong dollar are limiting upside. However, expectations that the Fed will cut rates significantly in November are providing fundamental support for gold.
Impact of US economic development and Fed expectations on gold prices
The U.S. dollar (USD) edged higher on Thursday on positive economic data and a cautious tone from Federal Reserve officials, limiting gold's potential upside. Federal Reserve Bank President Michelle Bowman and Atlanta Federal Reserve President Rafael Bostic opposed rushing to cut rates aggressively, citing concerns about persistent inflation.
“Inflation risks remain high, so we need to be cautious about easing policy prematurely,” Bowman said.
But other Fed officials, including Governor Lisa Cook, have signaled support for a 50 basis point cut, citing declining inflation risks and rising employment concerns.
According to CME Group's FedWatch Toolthe chance of a 50 basis point rate cut at the November Fed meeting has risen to more than 50%.
US data provides mixed signals
The latest U.S. economic data showed second-quarter GDP growth of 3%, but durable goods orders stagnated in August, sending mixed signals about the strength of the economy.
